Episode 776: Here We Grow Again

There is nobody more sunny and optimistic than a politician writing a budget, and Donald Trump is no different.

His budget promises a golden age of new jobs and progress, with tax cuts and a border wall to boot. To make all this possible, it assumes one thing: that the economy will grow at 3% every year. This is very hard. Other countries do it all the time, but the United States hasn't consistently seen that kind of growth in decades.

On today's show, we come up with a plan to get there, but Donald Trump might not like it.

There is no one who is more optimistic, more sunny than a politician who is writing a budget.

ROBERT SMITH, HOST:

And we just saw this in Donald Trump's budget this year. In order to make the numbers work, Trump makes this big assumption that the economy is going to expand and grow every year.

VANEK SMITH: Nothing but blue skies.

SMITH: Unicorns, rainbows.

VANEK SMITH: And there is a number that sums up this rosy picture. Trump's budget assumes that the U.S. economy will speed up and grow by 3 percent a year over the next decade. Three percent, Trump says.

SMITH: Minimum.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: You know, we're saying three, but I say four.

SMITH: This is from Fox News.

(SOUNDBITE OF ARCHIVED RECORDING)

TRUMP: And I say there's no reason we shouldn't be able to get, at some point into the future, to five and above.

SMITH: You do. And when you put it that way, I mean, growing the economy at 3 percent - I mean, 3 percent sounds easy. If someone told you, hey, just work 3 percent harder next year, you'd be like, no problem.

SMITH: But for an economy the size of the United States, 3 percent growth is incredibly difficult. In President Obama's first budget, he promised more than 3 percent growth. And year after year, we never got there.

VANEK SMITH: And you can think of it this way. To grow 3 percent a year for 10 years means that in a decade, the U.S. economy would be a third larger than it is now. That is a lot of growth.

SMITH: Currently, the U.S. economy is growing at around a real rate of 2 percent. And if Donald Trump could get us to 3 percent growth, he would be an economic hero. It's improbable, but it is not impossible. So we got to thinking here at PLANET MONEY. What would it take? What would it take for Donald Trump's economic vision to come true? Could we come up with a plan to get the United States to 3 percent growth?

VANEK SMITH: You know, Robert, it is like what that cartoon from "Schoolhouse Rock!" used to say. Remember "Schoolhouse Rock!"?

SMITH: And I'm Robert Smith. Three percent growth. If Donald Trump is right, we are about to enter a new golden age of jobs and progress. We can increase the size of the military. We can cut taxes. We can build a wall, roads, bridges - sky's the limit.

(SOUNDBITE OF SONG, "THREE IS A MAGIC NUMBER")

BLIND MELON: (Singing) Three is a magic number. It takes three...

VANEK SMITH: Three percent is doable. Today on the show, we make a plan to get there. Slight problem - Donald Trump probably is not going to like what it's going to take.

SMITH: OK, we're going to do something today that we almost never do. We're going to come up with policy and do some math to see how it all works out. We've sharpened some pencils here at the PLANET MONEY studios in New York, and we've invited an expert into our studios in D.C. Sorry, I'm hearing a bunch of things moving around.

MARC GOLDWEIN: Yeah, I was just rolling up my sleeves. Sorry about that.

SMITH: Like, you're literally rolling up your sleeves.

GOLDWEIN: (Laughter) Yeah, well, we're doing budgeting.

SMITH: Marc Goldwein is the policy director with the Committee for a Responsible Federal Budget. They're a nonpartisan group that gets deep into the weeds of how the government spends money, started by Republicans and Democrats.

GOLDWEIN: I've never made a president's budget. I have served on two commissions where we had to make a series of recommendations, and they had to actually add up.

VANEK SMITH: When the president's budget came out, Marc was really looking forward to seeing how it added up. And he started looking through, and he saw this number - 3 percent economic growth. And he's like, huh, the president doesn't say anything about how he's going to make this happen, just that it will happen.

SMITH: In fact, Trump's budget advisers said the core of Trumponomics (ph) is to pick a number, to pick a dream and work your way toward that.

VANEK SMITH: It's like aspirational economics.

SMITH: Yeah.

VANEK SMITH: (Laughter).

SMITH: So Marc and his group decided to do the math that the president left out. He was going to figure out exactly what it would take.

GOLDWEIN: Three percent growth is possible if absolutely everything goes right at the same time. And that means everything going right in terms of policy, and it means everything going right in terms of luck.

SMITH: OK, so let's break this thing down. Economic growth is measured in GDP, gross domestic product. This is the sum of all the goods and services we produce every year in the economy. And there have been plenty of times when the GDP grew more than 3 percent a year. A lot of those times have to do with the baby boomers.

VANEK SMITH: It's always the baby boomers.

SMITH: Always the baby boomers. Well, during the 1960s, when the first wave of baby boomers were starting to get jobs, there were more people working. More workers means more stuff, and that equals a growing economy.

VANEK SMITH: Same thing in the 1990s. The baby boomers were reaching their peak earning years. They were working hard. They were making stuff. There was this technological boom in computers and the Internet, and the economy grew really fast.

SMITH: Problem now is that the baby boomers - ah, always the baby boomers - they're starting to retire. And we've been struggling to get just 2 percent growth a year. So Marc and his team came up with sort of three general things, three big areas of the economy we could affect to make sure that we grow.

VANEK SMITH: The first one is to find someone, anyone really, who can take the baby boomers' place. You need to find more workers. Once again, more workers make more stuff, provide more services and make the GDP go up.

GOLDWEIN: That's exactly right. And so one of the tools that folks have discussed regarding the economy is more immigration. But for us to get 3 percent growth, we would basically need to double our immigrant population over the next decade. So in other...

SMITH: Wait, double the existing immigrant population...

GOLDWEIN: Double the...

SMITH: ...Right now.

GOLDWEIN: ...Existing immigrants. So in other words, immigrants today, that are here today, some of them have been here for as much as, let's say, 80 years, right? So we need to take the last 80 years of immigration and do it again in the next 10 years. If we roughly did that, if we roughly doubled the amount of immigrants, that could get us, in theory, something at least close to 3 percent growth.

SMITH: Wait a minute. It sounds like you should get much more growth than 3 percent for that many people. We're talking about millions of people.

GOLDWEIN: I mean, we're talking about 40 to 50 million people. But remember, we're an economy that's starting with about 350 million people. And also remember, we're not only having adult, working-age working immigrants, right? Immigrants would also include children and the elderly and people that eventually would become disabled or otherwise outside of the workforce. So it's not like we can pick people one by one and be secured that every single one of them is going to be a fast contributor to the economy.

VANEK SMITH: Forty million immigrants does not sound like something that President Trump would support.

SMITH: I mean, not only should you not build a wall at that point, but you should actually charter buses...

VANEK SMITH: (Laughter).

SMITH: ...To bring...

VANEK SMITH: Into the country.

SMITH: ...To bring people over.

VANEK SMITH: Bring them in.

SMITH: And the point of this example is just to show you how hard 3 percent growth is without the baby boomers behind you. You need 40 million more immigrants to make up for it.

VANEK SMITH: OK, so let's just assume that 40 million immigrants is politically unfeasible right now.

SMITH: OK.

VANEK SMITH: There's another way.

GOLDWEIN: So one option is to actually look to the problem for the solution. Part of the reason that our economy is slowing, actually the main reason, is that we're getting older. And part of that is because we're living longer. But embedded in that is a partial solution, which is that as we're living longer, we're actually healthier for longer, and there's opportunity for us to work, on average, more years, for us to have more productive aging, more flexible retirements.

SMITH: So in other words, keep the baby boomers around. Don't let them retire.

GOLDWEIN: I'm not saying don't let them retire. But if everybody just worked one year more, there'd be a significant effect on economic growth, not to gain the 3 percent. But that would give us a decimal point or so of economic growth.

SMITH: Ten years more? Ten years more?

GOLDWEIN: Ten years more might do it. The average retirement age right now is about 63. If instead everybody worked to 73, that might get us something very close to that 3 percent growth.

SMITH: What should we do to keep people working longer without mandating they have to work longer?

GOLDWEIN: (Laughter) We have a lot of signals we send people to tell them to retire early. The Social Security early age is 62. The normal age is 66 and not really going to rise with life expectancy. The Medicare age is 65. You can pull out from your IRA at 59 and a half. You know, we can start to gradually lift these ages a little bit. We can create tax breaks, like a payroll tax break, for folks that work longer. We could change a lot of the regulations and rules to encourage employers to keep people on for longer.

SMITH: OK, so just increasing the labor force alone, unless we talk about really radical solutions, will not get us to 3 percent.

GOLDWEIN: I mean, that's right. There's one more option for the labor force...

SMITH: Oh, really?

GOLDWEIN: ...Besides...

SMITH: (Laughter).

GOLDWEIN: So there is also somewhat of an untapped population currently, right? There is - there are folks that are unemployed. There are folks that are out of the labor force that could be entering it.

SMITH: Oh, yeah, yeah.

GOLDWEIN: But if you took the unemployment rate down to zero, you'd not even be close to 3 percent growth. What you'd also have to do is take every single adult age 25 to 55, you know, every single prime-age adult and force them to work. And that includes folks that are home because they're taking care of their kids. That includes folks that are in jail, that are on disability. And it includes some folks that legitimately could be working with the right mix of incentives and support.

So we could get to 3 percent growth if basically every single adult, every single working-age adult, was working. But that's not a realistic view of the economy either.

VANEK SMITH: I feel like my dad would be excited about this part. Like, everybody works no matter what, no excuses.

SMITH: I feel like this...

VANEK SMITH: You're in jail. You're sick. You got to work.

SMITH: I feel like this is where zombies...

VANEK SMITH: (Laughter).

SMITH: ...Could also help out. The...

VANEK SMITH: Zombies don't have to sleep. They have a lot of energy.

SMITH: ...The undead.

VANEK SMITH: The undead.

SMITH: The undead.

(LAUGHTER)

SMITH: So - OK, so this first set of ideas, different ways to add more workers, this is the most direct way to make up for the baby boomers. But it's also insanely difficult to get people to work when they don't want to, to drag people back from retirement. I mean, people have a lot of reasons to stay home. You cannot make them do it.

VANEK SMITH: But let's set aside the workforce idea for now because there is another set of things that Trump could do to boost economic growth. And I think this one would be more up his alley.

GOLDWEIN: So the second thing that drives economic growth is what we call capital. And this basically means all of the machines, buildings, software, all the stuff that we use to make more stuff.

SMITH: And Trump does talk about this - right? - I mean, more factories, more stores. Every time something gets built, you get more economic growth, more government building projects, infrastructure, more objects, tools.

GOLDWEIN: Hammers, microphones, speakers - I use Microsoft Excel. That's one of my best pieces of capital in my job. We would need to basically double our capital growth that's projected over the next decade. And we would need to do significantly better, about twice as well. We'd need to improve about twice as well as we did in the 1990s. So remember, in the 1990s, we had the tech revolution, I mean, so much new software, so much new IT, fiber optics...

SMITH: Yeah, every...

GOLDWEIN: ...Laid out in every street in America.

SMITH: And as someone who was around in the '90s, every office bought that big desktop computer for every one of their workers if you're a white-collar worker.

GOLDWEIN: Exactly. So back in the 1990s, there were some years we were growing over 4 percent. And we were having steady growth that was in the mid-to-high threes.

SMITH: If we were to do that again, if we were - if something were invented that every single office would absolutely have to buy, whether it's, I don't know, virtual reality or hologram, something that just transforms business in a way and people have to pour money and capital into it, how much would we have to do?

GOLDWEIN: If we were to go back to the '90s level of capital growth, that would get us to about 2.5 percent annual growth, right? So in round numbers, we're trying to jump from two to three, and that would get us halfway there. So we would need two dot-com booms going simultaneously, at the same time. Now, maybe we can get that with self-driving cars or something else, but I'm not seeing where that is right now.

SMITH: OK, so two dot-com booms.

GOLDWEIN: Concurrently. Two dot-com booms at the same time in different arenas.

VANEK SMITH: So we would need a golden age of capital, a whole new set of tools or factories or types of businesses that didn't exist before, a lot of new spending.

SMITH: Yeah, or more likely, more realistic is you would do a lot of little things that encourage businesses to expand. So we've talked in the podcast before about corporate tax reform. A lower corporate tax could - this is in theory - get businesses to expand. If it's done right, a lot of those businesses that have moved overseas for tax reasons, they might come back. You add all those together, and Marc says you could get some fraction of a percent of economic growth.

VANEK SMITH: OK, so there is a final way that we could get to 3 percent growth without the new workers and without the new factories. We could just all get a whole lot better at our jobs.

SMITH: I've been saying that a lot about you.

(LAUGHTER)

VANEK SMITH: Productivity.

SMITH: Productivity.

VANEK SMITH: If people get better and better each year and they produce more and more goods and services each year, then that alone will grow an economy. That's amazing.

GOLDWEIN: Particularly since productivity's a little more magic than the other two.

SMITH: Yeah, magic as in, you don't have to open the borders. You don't have to convince businesses to buy all this new stuff. It's this sort of free solution.

VANEK SMITH: But also magic in that no one really knows how productivity is sparked. We just did a whole show about this. And sometimes there's a lot of new inventions or technologies that transform everything about the way we work. But recently, there's actually been a productivity slump in this country. Even with the iPhone and the cloud and the Internet and everything like that, productivity hasn't really grown much over the last decade. And we would have to have some huge leap forward.

GOLDWEIN: To get to 3 percent growth, we need to do better than we did in the 1960s. In the 1960s, which - it's hard to believe when you think about - but that's really when the benefits of electrification of basically the entire country, and the benefits of home appliances and the benefits of the national highway system were all making our labor much more productive than it had ever been. And it's really not clear we can ever repeat that.

SMITH: Things that are so fundamental to our lives that we don't even think about what it would be like before them.

GOLDWEIN: So we need to find that next thing, that next productive idea that is fundamental to our lives and that is going to change the way we do stuff. We can get faster productivity, you know, through things we know how to do, like more research and experimentation, like better incentives for us to get higher returns. But to get a productivity revolution like we had in the 1960s, we need to find something we haven't even thought of.

SMITH: I've been reading a bunch of science fiction lately. And it has occurred to me that perhaps science fiction writers should come up with something, should come up with this sort of new idea in economics.

VANEK SMITH: I think the baby boomers are still the key. I think if they pool their collective brain power, they could get us yet another economic bump.

SMITH: Just one more.

VANEK SMITH: I believe. I believe.

SMITH: Just one more is all we're asking. And I - you know, I mean, look. This is part of the problem. The time we have grown up in has led us to believe that high growth is easy, that it is the status quo. But when you take it apart, it has really been a bunch of sort of lucky one-time breaks. I mean, there is not going to be another baby boom. And you only get one shot at sort of the desktop computer revolution. From here on out, it's going to be a slow grind to get growth.

VANEK SMITH: But what if you did, like, a little bit of all the things? What if you had a little immigration reform, some better education and training? What about that?

SMITH: Yeah, what about that? We're going to have Marc do the math after the break.

Marc Goldwein has been doing the math for us. And I asked him, OK, if we got a little bit of everything we talked about - a little bit of immigration reform, maybe something to boost productivity, some of those retirement changes we talked about - what do you think the American economy can grow at? What do you hope it can grow at?

GOLDWEIN: My goal, number one, is let's get to the right side of 2 percent. Let's get above 2 percent.

SMITH: Oh, no.

GOLDWEIN: And then my goal, number two, is let's try to get - inch our way up to 3 percent. I think if we get serious in immigration, I do think 2.5 percent is achievable just because immigration kind of - it's almost cheating because immigration just brings you more people, right? That's a lot easier than these other things. It's a lot easier to bring in more people than to encourage people, on their own volition, to work longer or to work more hours.

SMITH: As we said at the beginning, Donald Trump probably isn't going to like this. But, you know, we have set out the big dream. It's sort of like how, you know, John F. Kennedy challenged America to put a man on the moon. Trump could, if he wanted to, challenge us to transform our society to accomplish 3 percent growth. I mean, picture it - you know, gray-haired baby boomers still working late into their 70s right alongside 40 million new immigrants.

VANEK SMITH: Driving on new roads over new bridges to new factories.

SMITH: Oh, not driving, being driven...

VANEK SMITH: (Laughter).

SMITH: ...By autonomous vehicles.

VANEK SMITH: Yes, giving us time to put on our virtual reality helmets, where we could take online courses that would allow us to be more productive at our jobs.

GOLDWEIN: 3D printing. They always throw 3D printing in there.

VANEK SMITH: (Laughter) Always 3D printing.

SMITH: To paraphrase a president that got us, by the way, to 6 percent growth...

VANEK SMITH: Now we are going to cue Robert's really terrible John F. Kennedy impression.

SMITH: ...We choose to fight for 3 percent growth and all these new technologies not because they are easy...

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN F. KENNEDY: But because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we're willing to accept, one we are unwilling to postpone and one we intend to win, and the others too.

(APPLAUSE)

SMITH: Thanks again to Marc Goldwein, the senior policy director of the Committee for a Responsible Federal Budget, for coming in and doing the math. We would love to hear from you, even through old technologies like email - Planetmoney@npr.org.

VANEK SMITH: Or a letter.

SMITH: Or a letter.

VANEK SMITH: Postcard.

SMITH: New fangled technologies, like Twitter and Facebook are also welcome.

VANEK SMITH: By the way, Robert and I are going to be performing at a live show this Saturday, June 10...

SMITH: In Brooklyn.

VANEK SMITH: ...In Brooklyn as part of Tape Fest. Come out and see us. We would love to have you there.

SMITH: Tapefest.org Our show is produced by a millennial, Nick Fountain. Good luck to you. You're taking over, buddy. And it was edited by Bryant Urstadt. Our senior producer is Alex Goldmark. I'm Robert Smith.

VANEK SMITH: And I'm Stacey Vanek Smith. Thanks for listening.

There's another way.

SMITH: Another way.

VANEK SMITH: There is another way.

SMITH: Another one, another one.

VANEK SMITH: (Laughter).

SMITH: My daughter was on a rant about DJ Khaled this morning. She's like, DJ Khaled doesn't do anything, and I'm like, he brings people together.

VANEK SMITH: All he does is win.

SMITH: Yeah, no matter what.

(LAUGHTER)

ROBERT SMITH AND STACEY VANEK SMITH: (Singing) All I do is win, win, win, no matter what, got money on my mind, I can never get enough.